Last Week’s Review

We remain bullish across all time frames though the long-term view is not as strong as last week. We are keeping an eye on the US$210-220 zone to be our turn to represent step #2 of a trend change but it is very premature to make the call and requires weeks of confirmation. However, it is reasonable to begin establishing bullish positions because the risk-reward ratio is really good, picking up bitcoins in the US$220-235 zone for a short-term move back to US$250 or a longer-term goal above US$300. The risk is very small as a move down to the low teens would imply the breakout is on hold and lower prices are very likely

Two scenarios in order of higher probabilities

Bullish: We are expecting a breakout to surpass the most recent high of US$243 and hopefully break above US$250 resistance. From there it is very likely that a pause would be needed but we are eyeing a daily closure above the 50-day SMA for the first time since November some time this month.

Bearish: The bear rears its ugly head once the recent lows are taken out. Only if the price drops under US$210 will we consider the possibility of lower prices. At this point there is really not much support so if we go under $US200, going down to as low as US$100 becomes a real possibility.

So, what a week this has been for the price. It started off exactly as expected and took off to break the recent highs of US$243 but was stopped just short of the big round number US$250 on Bitfinex. At that point the expectation was that the US$211 low should be it for the foreseeable future but in quick order the prices reversed and made a lower low of US$210 before rebounding once again.

Obviously a lower low by just a single dollar is not relevant in the grant scheme of things, but for a trader it really can keep you up at night as to the future expected direction of this wild wild west of an asset. Even last week’s conclusion stated that the Bullish case is abandoned if prices go in the low teens (meaning US$213-215) but it also states that we do not consider an imminent breakdown in price unless we go ‘under’ US$210 (which we did not by a few cents). These tough decisions will be further examined in the educational section.

For now we start as usual by looking at the big weekly picture.

The weekly chart is not looking all that rosy. Even though we have a doji style candle last week, it is not at the bottom of the decline in prices. That honor goes to the hammer candle 4 weeks ago. When it comes to Candle-Stick patterns, a hammer is confirmed as reversal when the following candle (or even the one after that) can clear the top of the hammer and close above it. We accomplished half of the criteria. We are still expecting a bounce here to take us up back to the upward trending green trend-line, but this is by no means guaranteed.

Fundamentals & News

As usual we present 3 good roundups for those too busy to keep up with it all:

The big news this week, even though it’s flying under the radar, is the fact that Ross Ulbricht has been found guilty on all counts. The Bitcoin community has generally dismissed Ross and that is very unfortunate. It is obviously not expected for people to fill up the court house and stand outside picketing, but you can’t fight the feeling most people don’t realize that Bitcoin would not be where it is today if it wasn’t for Wikileaks and Silk Road.

In a way it’s a bit ironic that those not involved in Bitcion always joke that the only thing it’s good for is drugs while the majority of those involved in Bitcoin want rules and regulation so that Bitcoin can fit into a place within the current financial system to disassociate from drugs as much as possible.

Everyone has their opinions but the fact is Bitcoin will never fit into the current financial/political system because it was created and became popular fighting against these institutions. As for the drug connection, the discussion should really begin as to why any of them are still illegal and bitcoin should be embraced for allowing people to participate in mutually beneficial contracts with the added benefit of doing so in the safety of their homes.

Of course this will not stop the black markets from growing within the crypto space. Many other sites have already grown to the same size as Silk Road, but what this case has done is set a very bad precedent. Future cases can now refer this one and blame the admin of any website for the content on that website. In the future, expect more websites to move into the decentralization sphere where there is no admin and we all know what type of currency will be used on these websites.

“People need to understand that just because something is optimal of bad actors and those with habits governments do not approve, does not mean that it is bad for the entire population.”

- Tone Vays

The latest scam news is brought to us by MyCoin, which is a company most have not even heard of. Once again this goes to the point that people need to just start thinking about where they are keeping their bitcoins or which projects they are contributing too. Bitcoins can be one of the safest things in your possession, but it can also be one of the easiest things a 3rd party can walk away with given the opportunity.

Based on some of the numbers being spread around that were lost in the MyCoin scam (some say up to US$500 million), it might be possible we have reached scam saturation and bad actors are now making up numbers to feel more important. All of this will one day pass, as more and more people will start to take control of their finances as merchant adoption continues to grow. BitPay’s latest deal with Adyen is good for the space long term even though in the mean time it is flooding the market with Bitcoin supply by providing more places to spend and immediately selling on the open market with not much regard for increasing consumer demand.

Education (Tough Decisions)

When watching sports, announcers always say, “it’s a game of inches.” Well in trading, it can be a game of pennies. We saw this on two occasions just last week. First when the price went up to US$248 and if the trader had his exit set to take profits US$249 – US$250 what is one to do as the price turns down. What about a situation where we have a low of US$211.50 and there is an expectation that if this low breaks then we would fall for a long time? This low was taken out by just one dollar US$210.12 before bouncing back up.

These situations happen way more often than a trader would like. Let’s discuss the first case described above. One common way to deal with these situations is to scale in and scale out each step of the way. One would buy in several stages and then also exit in several stages so if US$250 was your final exit, the damage from a big fall would be limited. If on the other hand US$250 was your first exit and you just missed it, there are several things that should be done.

One of them is that you can admit you just missed the exit and take the next best option even if it’s in the low US$240’s. If that was not in the cards and you are convinced that US$250 will still be hit, a good idea would be to make sure your profitable trade does not turn into a losing one. To achieve this you set your exit just above your entry point. There is nothing worse than a missed exit on a profitable trade that turns into a loss of principal.

To comment on the other situation of a very slightly lower low, it’s a little harder to manage. Obviously a trader would be cutting all long positions since it’s impossible to say how low something can go. On the other hand, if a trader decides to play a momentum move and goes short the moment a new low is created - this is where one can run into a serious problem. The only way to deal with the situation we just had is to have a mental or a physical stop loss in place. For last week, an optimal stop loss would have been around US$225 since the $223 level has been a very critical point as support and resistance.

“One of the best traits a trader can have is to have a plan and trade that plan, admitting a mistake and getting out is also usually a wise decision.”

- Tone Vays

Daily Overview

Here is the usual one-year look back using daily candles.

As you can see, the upward channel drawn a few weeks ago is sitting right on the edge. This channel is pretty steep and it is also not as defined as the previous one from October into December. However, the last time a channel like that broke to the downside it met the target and then some even though this target seemed way too excessive at the time. A break of this channel could easily bring on lower lows, but it will take another week to see how this plays out.

We now have a confirmation of the recent low at US$210. It is very critical for this area to hold. Even though there might be some support around the US$200 round number, under that you start to really worry. We were expecting the rebound last week to take us a little higher and to perhaps reach the 50-day SMA, which now sits just under US$260. It would be nice to still get there some time over the next few weeks.

We will show the 2-hr Candle chart one more time because it’s the one being highlighted on Twitter (@Tone_LLT) and also to show how steady the price has been over the last week. The Fibonacci line US$223 is pretty much acting as the middle line for almost two weeks.

Conclusion

Because the US$200-210 range held the price, we have to maintain our bullish view for a short while longer though the longer we stay at the bottom of this zone the more likely it is to drop out from under us. The US$223 mark remains critical so the number one suggestion for the time being is to do nothing in the US$215 to US$230 range. If we start to go down into the low teens again, there is a very small probability that US$$210 will hold the price for the 3rd time and lower prices will probably come about. On the other hand if we break above US$230 and actually stay there for more than a few minutes, we might still reach our targets at US$250 and above.

Two scenarios in order of higher probabilities…

Bullish: We remain slightly bullish but would need to see a close over US$230. Resistance continues to mount so if we do start to go up, US$254 and the 50-day SMA is what will probably put a stop to things. If we make it past that, then it’s back to the recent highs of US$315 and probably more.

Bearish: The bear rears its ugly head once the recent lows are taken out. Only if the price drops under US$210, will we consider the possibility of making new yearly lows. At this point there is really not much support so if we go under $US200, going down to as low as US$100 becomes a reasonable target. (This part was left virtually the same as last week)

Reference Point: Sunday Feb 8 11:30 pm ET, Bitfinex Price US$223

About the author

Tone Vays is a 10 year veteran of Wall Street working for the likes of JP Morgan Chase and Bear Sterns within their Asset Management divisions. Trading experience includes Equities, Options, Futures and more recently Cryptocurrencies. He is a Bitcoin believer who frequently helps run the live exchange (Satoshi Square) at the NYC Bitcoin Center and more recently started speaking at Bitcoin Conferences world wide. He also runs his own personal blog called LibertyLifeTrail.

Disclaimer: Articles regarding the potential movement in cryptocurrency prices are not to be treated as trading advice. Neither CoinTelegraph nor the Author assumes responsibility for any trade losses as the final decision on trade execution lies with the reader. Always remember that only those in possession of the private keys are in control of the money.

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